Mobile Banking – The way Forward

1. Mobile Banking – The way Forward Mar 11, 2009 Abrar A. Mir EVP, Business Development & Strategic Initiatives abrar.mir@ubl.com.pk

2. Agenda • Mobile Banking definition • Mobile Banking and interfaces • Pros & Cons of interfaces • Current models –Pakistan and Globally • Evolution of Banking channels • The Way Forward • Market Opportunity • Mobile as extension of multichannel strategy • Convergence of technology and financial services • Future Business Models • Mobile banking beyond being extension of internet banking • Security Dilemma • Key Take Aways

3. What is Mobile Banking • Mobile Banking is the use of mobile-phone based interfaces to provide account information and transactions opportunities to customers of financial Institutions • These interfaces could include any or all of the following: • SMS • WAP • Downloadable Application - J2ME • Embedded application – STK • USSD • Proximity Payments • NFC • RFID Mobile Banking and Branchless Banking are not the same

4. Pros & cons of various Interfaces Multi interface Delivery will remain a minimum necessity to get access to broad range of target markets

5. Current models –Pakistan and Globally • Various models are out there in the market that include: • M-Pesa • WIZZIT • ABSA • MTN Banking • G cash • SARAF Mobile • UBL ORION There is "nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things" (Machiavelli) A proliferation of technology and business models has been adopted, with no clear winner in terms of technology or business models as yet. Regulatory environment is also still evolving

6. Postal Channel Call Center Branch CUSTOMER PC Banking (Private Network) Mobile/ Telephony PC Banking (Internet) ATM/ Kiosks Interactive TV Mobile Banking as an extension of Bank’s multichannel delivery strategy Cost, Efficiency and Convenience key drivers for evolution of various delivery channels Will it just be another channel? OR Will it transform the way banking is done and result in Transforming the business models both for the bank and it’s customers? Channels getting more high tech and high touch

7. The Way forward

8. Market Opportunity The case for a “mobile” based “banking solution” is quite evident • Approximately 60 million mobile customers Vs approximately 20 million banking customers • POS based solutions like Credit Cards and Debit cards have had a very limited market growth. After about 15 years since the introduction of first large scale Credit cards in Pakistan, we today have about 45,000 POS and only about 20,000 outlets in Pakistan accepting the Cards. • There are only 3500 or so ATMs in Pakistan • Most bank call center calls are for: balance, transaction inquiry, funds transfer, or bill payment • Up to 50% of those calls currently come in from cell phones • Mobile phone usage highest among consumers under 45 -- same as online banking and bill payment • Huge opportunity to sign in to mobile banking among existing bank customers as well as huge opportunity to sign new customers • Time for POS and to some extent ATMs may have passed in Pakistan with the opportunity to leapfrog to “mobile banking” and “ mobile payments” The population of generation Y (born after 1978) in Pakistan, based on the last census is more than 70 million as of today. Not planning for their needs can only be termed as a death wish

9. Convergence of technology and Financial services is changing the playing field rapidly with “Mobile” device at it’s centre Change in competitive Rules. Creation of New Opportunities. Changed Service Focus. More power to buyers Emergence of alternative products Personalized vs. Standard products New market entry Cost Reduction Customer-Orientation Product Differentiation Specialization

10. Convergence advantages • Lower research cost • Time • Expense • Greater convenience • Lower transaction costs • Broader communication, from one to many • Real-time access • Transparent to user • Wider reach/access • 24 hours/day, 7 days/week • Accurate and efficient • Increased customer satisfaction • Increased retention • Improved lead generation • Increased market share • Increased wallet share • Expanded sales & marketing channels • Increased customer knowledge Technology is opening up new markets, creating new models of doing business and reinventing the value chain It is about the SERVICES and not the technology.Converging technologies are just the enabler that is facilitating “service convergence”

11. Cost Efficiency Service Marketing ProcessIntegration Value ChainReengineer NewVision MarketBreak through Future Business Models Level Four Entrepreneurial Network Market Breakthroughs & Industry Integration Relational Level Three Strategic Partnering Business Performance Improvements Level Two Teaming Enhanced Service Level One Vendor Cost Reduction Transactional Expanded Value

12. 21st Century Business model Enablers Alliances Development of strategic alliances to meet customer demands by utilising the core competencies of other providers Business optimization Use of the Internet and mobile as a revenue generator and as a low cost distribution channel Electronic communities Design of value added content and functionality for strengthening relationships Flat organizational structure Development of a flat / flexible structure with skill sets focused on innovation and delivery Global branding Common look and feel across global markets Innovation/experimentation Experimentation with emerging technologies for continuous improvement Service excellence Development of world class customer service over all available channels Virtual customer intimacy Collection and intelligent analyses of customer data for forecasting customer needs

13. CommercialCash Mgmt. CheckReorder StopPayment BillPay FundsTransfer PersonalSecurity ActionableAlerts BalanceInquiries LocationFinder Mobile POSPayments M-Statements Mobile banking will drive value beyond its early role as an extension of Internet banking / alternate channel for delivery Account Opening Adoption 2007 2008 2009 2010 2011 2012 Differentiation Familiarization Convergence

14. The security dilemma, a balancing act • Security becomes more important as we move toward mobile payments and an ever increasing number of users • Regulation • Compliance • Anti-money laundering • Identity theft • Access control • First line of defense is to educate the user. The greatest root cause of external breaches continues to be the human factor • The desire for greater functionality must constantly be supplemented with stronger security measures to offset the risks of each new capability. • These security measures must be highly nimble; they must be quickly deployed and evolve over time to anticipate and adapt to new threats and emerging risks, as well as satisfy a new generation of customers who want more-personal and customized experiences that match their lifestyles. • A security strategy is essentially a road map for mitigating risks while complying with legal, statutory, contractual and internally developed requirements. • Some of the basic components include defining control objectives, identifying and assessing approaches to meet those objectives, selecting controls, establishing metrics and benchmarks, testing and implementation, and performing ongoing maintenance. • The ultimate goal is to increase customer confidence across online channels and reduce losses due to fraud and identity theft across the enterprise. Tough Security vs Customer Experience

15. KEY TAKE AWAYSTHE BUSINESS CASE IS CLEAR • The second act of mobile banking shows longevity as consumer need, network maturity, device sophistication, and advanced technology enablers coalesce into a business case. • Mobile banking is emerging as an indispensible business asset to retain customers and reach new segments • The Key success driver will be the “Customer value proposition” whereas most of the current m-payment solutions are driven from “supply side” • Waiting to act turns banks into prey for nontraditional players that pose a short-term threat of disintermediation, but in the long run the banks will thrive. • Consumers will pay for the convenience and urgency factors of mobile financial services, and banks should be looking at opportunities to monetize premium services. • The banks will become “Money managers” for customers as the distinction between Mobile as a “distribution channel” vs. a” payment solution” will gradually disappear. • Different “business models” will evolve based on different market needs and regulatory environment • “Interoperability” will always remain the key for the phenomenon to gain wide and quick adaption